Tuesday, December 20, 2011

BHP kicks off diamonds sell-off

BHP Billiton has entered a $C9 million agreement to sell its stake in one of its two diamond operations in Canada to joint venture partner Peregrine Diamonds, part of the miner's wider review of its diamond business.

The Anglo-Australian miner will sell its 51 per cent participating stake in the Chidliak diamond exploration project in Baffin Island, increasing Peregrine's 49 per cent stake to 100 per cent ownership.

The sale is part of BHP's review of its diamond businesses, a move flagged by the company last month. BHP is in the process of examining whether a continued presence in the diamond industry fits with its business strategy.

BHP also owns an 80 per cent equity stake in the EKATI Diamond Mine in Canada.

Last month, BHP said, while EKATI is a world class operation and Chidliak offers promising exploration opportunities, "many years of extensive exploration suggest there are few options to develop new diamond mines that are consistent with (its) approach" of focusing on developing large, long life, and expandable assets.Tile2_28DayPass

Peregrine will pay BHP $C9m over three years for Chidliak, while granting BHP a 2 per cent royalty on any future mineral production from Chidliak.

Peregrine has also acquired BHP's Canadian regional diamond exploration database and BHP has agreed to extinguish both Peregrine's royalty obligations and BHP's diamond marketing rights on certain Canadian mineral properties in which Peregrine has an interest.

"We are pleased to sell our interest in Chidliak to its natural owner," said BHP Billiton Diamonds and Specialty Products president Tim Cutt. "Peregrine has been a good partner and we believe they are a strong operator that is well positioned to advance this promising exploration opportunity."

Peregrine chief executive Eric Friedland described the deal as an "excellent growth opportunity" for the company.

"A 100 per cent stake in Chidliak, one of the world's leading diamond exploration projects, at a time when diamond supply shortfalls are on the horizon and worldwide demand for diamonds continues to grow, offers us complete flexibility on how this project will be developed in order to maximize shareholder value," Mr Friedland said.

The announcement follows the Oppenheimer family's recent $US5.1 billion sale of its 40 per cent stake in South African diamond producer De Beers to miner Anglo American.

Anglo sees diamonds being undersupplied in the future at the same time as demand from China, India and the Gulf States rises to equal that of the US, the world's largest consumer. The US accounts for 40 per cent of diamond demand.

BHP and Peregrine have agreed to close the transaction by January 31, 2012.